Thursday, February 9, 2012

I have always thought electricity was rather pricey in Spain. Despite plenty of effort to keep the bills down, mainly involving use of cumbersome gas bottles, the monthly bills seem to roll in higher and higher. It is therefore surprising to learn that Spanish electricity bills are subsidised and the consumer does not pay the full cost of production.

The subsidy relates to renewable energy. Spain takes great pride in its renewable energy sector and has encouraged hydro, solar and especially wind power to the extent that these sources supply 30% or more of the electricity Spain needs (it varies with wind strength).

But this success comes at a price: feed in tariffs which are generous to renewable suppliers but which are not passed onto the consumers (like they are in the UK by and large). Spain manages to get all the green benefits, including much trumpeted jobs, without the inconvenience of higher bills for end users. The trick is that the government set up a fund called FADE to carry the accumulated additional costs of the renewable energy and it has a deficit of €24 billion.

This in turn is funded by selling bonds to the market but given that this is effectively the government borrowing, the markets are starting to lump it in with general Spanish debt which is reckoned to be a major default risk. So the government doesn’t want the FADE deficit to swell any further and has pulled the plug: no more green subsidies.

It is supposed to be a temporary suspension but the renewable sector, and some regions like the Canary Islands, are up in the arms about the lost industry and employment. Even the WWF has weighed in bemoaning the effect on CO2 emissions. There are lots of quotes in the papers about 300,000 jobs that would have been created by 2020 being under threat.

I am somewhat dubious about alleged jobs being funded by secret slush funds and am not too sad about the decision. The big question for householders though is how long before the government puts up electricity bills to pay down this €24 billion deficit. That would be a painful “stealth” tax rise we could do without.